What would happen in the market for loanable funds if the government were to increase the tax on interest income the demand for loanable funds would shift right the supply of loanable funds would shift right the supply of loanable funds would shift left

Supply of loanable funds shift to the left

Explanation:

When there is an increase in the tax of interest income by government, it will lead to an increase in the interest rate will in turn will lead to a left shift in the supply of loanable funds. A shift to the left means that there is a decrease in supply.

The decrease in supply leads to an increase equilibrium interest rate and reduction in equilibrium quantity of loanable funds as demand of loanable funds now exceed the given supply.

Explanation:

Base on the scenario been described in the question if the government will increase the tax on interest income the demand for loanable funds would shift to the left. A shift to the left means that there will be a reduction or decrease in supply. When we have a decrease in supply, it will tends to increase equilibrium interest rate and the decrease in equilibrium loanable money as result of that, the supply will be exceeded by the demand of loanable money.

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